- Term Life Insurance
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- Permanent Life Insurance
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Understanding the two-year contestability period for life insurance
If you pass away in the first two years of your life insurance coverage, the insurance company has a right to contest or question your claim. This means that the insurance company may investigate the details of your medical history to make sure you didn’t misrepresent information on your application — for example, stating that you don’t smoke when, in fact, you do … and have for many years.
Misleading an insurance company by providing inaccurate information on your application to obtain better rates or approval for coverage is known as material misrepresentation. If evidence of this emerges, the insurance company can cancel your coverage or deny a claim. In some cases, they may withhold some or all of the benefit payment to your beneficiary.
Also, in many cases, insurance companies reserve the right to deny a claim if the insured commits suicide within the first two years of coverage.
Why does a contestability period exist?
The two-year contestability period begins on the issue date of your coverage, and it protects insurance companies from financial losses due to fraudulent claims. Because the cost of premiums for life insurance is typically based on a buyer’s age and medical history, some people may try to minimize their monthly premiums by intentionally misrepresenting certain aspects of their health and lifestyle, such as hiding facts related to a hazardous occupation, risky hobbies or unhealthy habits.
How does a company contest a claim?
When an insurance company investigates a claim, the process may involve a request to evaluate the medical records and other documents. The company is looking for information that reveals evidence of misrepresentation or dishonesty in the initial insurance coverage application.
How does coverage change after the two-year contestability period?
After the contestability period ends, life insurance coverage is usually considered incontestable. This means your beneficiary will usually receive the coverage amount as long as the coverage was in force. Some policies have exclusions, or situations in which a benefit may not be paid.
Also, be aware that if your coverage lapses, a new contestability period will go into effect when you reinstate or purchase a new life insurance policy. The most important thing to remember is to be sure that you fully understand the terms of your coverage before you purchase a life insurance policy.
Types of life insurance:
Term vs Permanent
How Life Insurance Works
When you buy life insurance, you pay premiums to an insurance company. In return, the company agrees to pay a death benefit to your beneficiary which can be anyone you choose, such as your spouse or children. Many companies can provide this protection, regardless of your age.
All Policies Aren’t the Same
Types of life insurance are divided into two broad categories: term and permanent. Term life coverage lasts for a set period of years. Permanent life, also known as whole life, can last as long as you live.
Term Life Insurance vs. Permanent Life Insurance
Why Choose Term Life Insurance?
Term life insurance is a way to get the coverage at a lower initial rate, with the understanding that rates will go up as you age.
Why Choose Permanent Life Insurance?
Permanent life insurance can provide premiums that won't go up as you age; plus it builds cash value that accumulates over time.
How Much Life Insurance Do You Need?
Begin by looking at the resources your beneficiaries already have, such as savings, Social Security, a pension or other insurance policies. Then think about the final expenses they may face - for instance, funeral costs, medical bills you may leave behind, rent and utilities, as well as the ongoing costs of maintaining their lifestyle. This will help you determine the right amount of coverage you need.
Adding to Life Insurance You Have
If you have already purchased life insurance, consider the effects of inflation and reevaluate your coverage amount to make sure you have enough. You'd need $1.52 in 2019 to equal the buying power of $1.00 in 2000, so what seemed like plenty of coverage back then may not be enough now.(Bureau of Labor Statistics August 2019) Also think about whether your needs have changed, particularly if it's been many years since you've reviewed your insurance policy.
Planning for the Future
Helping loved ones cope with immediate expenses is the first thing that most people think about when purchasing life insurance. But you can also use life insurance to help secure your family's future. Even a relatively small amount of life insurance may be enough to help with the down payment on a house or simply start a savings fund for someone you care about.
Once you decide on the type and amount of life insurance coverage you need, it's important to choose a life insurance company that you can trust. Look for a stable company with strong financial strength ratings from top independent rating services, such as A.M. Best, Fitch, Standard & Poor's, and Moody's Investors Service.
Guaranteed Issued Insurance
Provides coverage with absolutely no underwriting and no health questions to answer.